Water Shortages Now Affect Companies’ Bottom Line

Call it what you want: climate change, climate volatility, drought, or a long act of god. Water crises from Texas to Australia are affecting commodity supplies and raising their prices. Changes in the world’s weather patterns now have an impact on corporate profits across different sectors.
The smart companies are the ones that now include water stewardship within their overall strategies. Other companies are reacting by cutting profit forecasts. And meanwhile, companies like General Electric (GE) are finding business opportunities in technologies that now redefine the clean technology sector.

Campbell Soup Company is one firm that has ramped up investment in water management projects. Water recycling, reengineered cooling systems, and wastewater treatment are crucial for a company that sees only 2 percent of the water it consumes ends up in its food products. For beer companies like MillerCoors, water use is a huge concern as many of their breweries are in regions confronting water shortages, from Orange County to Idaho. Most beer companies operated under a ratio that saw five parts of water consumed for every one part of beer. Now most of these companies are nudging close to a 3:1 water-beer ratio. One of MillerCoors’ parent companies, Molson Coors, has pushed more companies to participate in the Water Disclosure Project, an initiative that asks the world’s largest 500 companies to share information about their water usage.

Other beverage companies, including Coca-Cola and PepsiCo, have been quicker to reduce their water consumption than their counterparts in the food processing industry. In fairness that is because water is a much more integral part of these companies’ operations. Companies like Sara Lee and Kraft, which have supply chains almost as complicated as electronics manufacturers, are raising prices due to drought. Nestle has also raised its prices, but activist investor organizations like Ceres have lauded the company for its ability to cope with water risk.

While many regions suffer from drought, other areas of the world are inundated with floods. Thailand’s worst floods in 50 years have forced companies like Toyota, Hitachi, and Fujikura to halt production, the effects of which have rippled throughout their supply chains. Other companies, such as the European pharmaceutical giant Sanofi, are finding themselves engaged in Bangkok relief efforts--Sanofi is donating vaccines to help prevent outbreaks of water borne diseases.

Water has long been underpriced and overused. With only one percent of the earth’s water available for human consumption, peak water could be a more pressing problem than peak oil. With water consumed at a faster pace than the natural rate of evaporation, precipitation, and storage, water stewardship will define many companies’ long term success or struggle.